Santos Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing overhead rate based on machine hours to ­allocate manufacturing overhead to its products. The company estimates that it will ­incur $ 1,640,000 in total manufacturing overhead costs in the upcoming year and will use 8,000 machine hours.
Up to this point, hazardous waste disposal fees have been absorbed into the plant-wide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process. Recently the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products and, as a result, profit margins on all products have been negatively impacted. Company management wants to implement an activity- based costing system so that managers know the cost of each product, including its hazard waste disposal costs.
Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows:

During the year, Job 354 is started and completed. Usage data for this job are as follows: 350 pounds of direct material at $ 35 per pound 50 direct labor hours used at $ 30 per labor hour 70 machine hours used 7 change orders 60 pounds of hazardous waste generated

1. Calculate the cost of Job 354 using the traditional plantwide manufacturing overhead rate based on machine hours.
2. Calculate the cost of Job 354 using activity- based costing.
3. If you were a manager, which cost estimate would provide you more useful information? How might you use thisinformation?

  • CreatedAugust 27, 2014
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